On November 1, 2016, the Ohio Department of Commerce released its “Cultivator Rules” factsheet, which outlines the key elements of its initial draft rules for cultivation licenses under the Ohio Medical Marijuana Control Program. The rules have not been proposed in full yet, though it appears likely they will be released later in the day.

The rules contemplate two levels of cultivation licenses, “Level I” and “Level II.” The rules cap the total number of Level I cultivation licenses at 12, and require a $20,000 application fee and $180,000 license fee. Level II cultivation licenses are more restricted in number, to six total licenses, but cost 1/10th the amount of the Level I licenses, with application fees set at $2,000 and license fees set at $18,000. The multiple levels of licenses suggest that Commerce is looking to facilitate both large cultivation facilities and smaller, possibly craft, cultivation facilities.

The licenses will initially be provisional when granted, and the cultivator must pass inspection and be prepared to cultivate within nine months of issuance. In addition, a cultivation license applicant must include quality assurance and security plans upon application, as well as demonstrate “adequate capital to meet facility plans and operational needs.” Capital requirements in other states have created a significant barrier to entry, so this requirement will be of particular interest to market participants, particularly those targeting Level II cultivation licenses.

The factsheet does not provide detail on critical items such as canopy limits or geographic distribution of the cultivators, though these items may be covered in the full rules once released.

The factsheet states that the first opportunity to comment will be starting tomorrow November 2, 2016 and be open through November 15th. The full factsheet and related information is available on the Ohio Medical Marijuana Control Program’s website (medicalmarijuana.ohio.gov).

Members of Benesch’s Regulated Industries Group will continue to monitor and provide updates on the Medical Marijuana Advisory Committee meetings and rulemaking process.

The following is an excerpt from a larger client alert regarding the “affirmative defense” provision of HB 523 and relevant considerations for doctors and patients interested in exploring its use prior to full implementation of the MMCP. Click here to read the full client alert.

When Ohio House Bill 523 (HB 523) became effective on September 8, 2016, Ohio joined the company of 25 other states, the District of Columbia, and several U.S. territories that have legalized cannabis for medicinal purposes. Modeled after highly restrictive regimes adopted by state legislatures in Illinois, Maryland, and New York, the Medical Marijuana Control Program (MMCP) envisioned by HB 523 has the potential to be one of the most complex and heavily regulated medical cannabis programs in the country. HB 523 relies on a tightly controlled ‘Schedule II’ pharmaceutical-style regulatory framework, but the Ohio legislature left some room for flexibility in the MMCP by punting to the rulemaking process several of the toughest issues it faced, such as determining the number of licenses available under the MMCP, the cost of licenses, the geographical distribution of medical cannabis businesses, and the hurdles doctors will face in order to recommend medical cannabis to patients with qualifying medical conditions.

The ultimate functionality of the MMCP – both in terms of the opportunity for seriously ill patients to access medicine, and the opportunity for market participants to create a sustainable program to serve those patients – will be determined by the extensive rulemaking and licensure process to be carried out by the Department of Commerce, the state Pharmacy Board, and the state Medical Board over the next two years. Several early indicators, however, have begun to cast doubt on the program’s viability as written. This article recaps several recent developments in the MMCP and addresses specifically the Medical Board’s recent guidance on the “affirmative defense” provision of HB 523, the only part of the law that is currently operational.

I. Early Actions Hamper Implementation of the MMCP

The Ohio Supreme Court’s board of professional conduct, which is responsible for regulating Ohio lawyers, tossed a fireball into the lap of the Supreme Court in August by releasing a narrow reading of the ethics rules applicable to Ohio lawyers when advising clients involved in the cannabis industry. Just weeks before the effectiveness of HB 523, the board of professional conduct told Ohio lawyers that, among other things, it was unethical to assist clients in setting up medical cannabis businesses or to represent them in the rulemaking process. As a result, several of the largest law firms in the state were forced to suspend their activities in the space while the Supreme Court rushed through an amendment to the ethics rules. Such an amendment was adopted on September 20th, allowing doctors, patients and cannabis businesses to obtain legal representation in Ohio.

Adding further confusion to the mix, the Ohio Municipal League has launched a statewide effort to educate local governments about HB 523. Given the lack of clarity on how the state regulations will operate and where cannabis operations will be located throughout the state, dozens of local governments have chosen to preemptively adopt bans or moratoriums on all medical cannabis businesses within their jurisdictions. While most of the jurisdictions that have adopted such measures are small cities in rural areas, a growing number of larger cities with significant potential patient populations, such as Lakewood and Cleveland, have adopted or are considering moratoriums as well.[3] The rationale often cited by local officials when imposing these measures (essentially, that if cities don’t act now, their Main Streets could be populated with unregulated cannabis businesses that would be ‘grandfathered’ out of later-adopted zoning restrictions) are inconsistent with how the MMCP and zoning laws actually function. An unintended consequence of these measures is that cities with moratoriums on the books could be passed over entirely by businesses seeking to obtain licenses for significant cultivation and processing facilities, which could easily run into the tens of millions of dollars and thus will require certainty as to the viability of site selection by such businesses early on in the planning process.

Most recently, on September 24th, the state Medical Board, which is responsible for regulating Ohio doctors, dealt a significant blow to patients hoping to avail themselves of the protections provided by HB 523 prior to the opening of dispensaries two years from now.[4] While couched in the context of guidance to doctors, the carefully worded interpretation of Ohio doctors’ ability to recommend medical cannabis during the “affirmative defense” period served only to highlight the gray area created by HB 523.

In its guidance, the Medical Board instructed physicians that they cannot issue a “state of Ohio approved written recommendation” to use medical cannabis until the Medical Board adopts rules for doing so, which could take up to a year. In the meantime, physicians who receive requests from patients for medical cannabis were encouraged to “consult with their private legal counsel and/or employer for interpretation of the legislation.” In response to the Medical Board’s guidance, representatives from the Ohio State Medical Association (OSMA) reiterated the association’s previous stance that doctors should not recommend cannabis until the Medical Board adopts its formal rules.[5]

The OSMA’s interpretation of the Medical Board’s guidance, in turn, quickly drew widespread news coverage. One of the lead state legislators behind HB 523, Senator Dave Burke (R-Marrysville) responded in interviews that “willing physicians are in the free and clear” to recommend cannabis during the affirmative-defense period, and representatives from the Medical Board added that the Medical Board would “review a medical marijuana related complaint as they would any other… [and] would consider whether someone violated state law, including the immunity provision.”[6] Another prominent backer of HB 523, Senator Kenny Yuko (D-Richmond Heights), issued a press release stating that “the affirmative defense section spells out everything a physician would need to do to provide patients with this limited, short-term protection without having to wait for the agencies. It simply wouldn’t make sense to read it any other way.”[7]

The affirmative defense provision and the varying interpretations of it by key actors has created quite a hairball for Ohio doctors and their patients to untangle with their lawyers. In an effort to facilitate discourse among the legal and medical professions regarding the affirmative defense provision (and by no means to provide legal advice to anyone), the rest of this article will cover some of the relevant considerations that doctors and their employers may want to evaluate with counsel in order to minimize risks when recommending cannabis to patients during the affirmative-defense period. While the recommendation and use of medical cannabis does pose at least some theoretical legal risk to all parties involved in the process, it is reasonably clear that Ohio physicians willing to face those risks do currently have the ability to recommend cannabis to patients with qualifying medical conditions.

Click here to read the full client alert examining the “affirmative defense” provision of HB 523 and relevant considerations for doctors and patients interested in exploring its use prior to full implementation of the MMCP.

Disclaimer: As with all of our publications, we remind you that we are providing this analysis for general informational and educational purposes, to help advance a general understanding and discourse around cannabis law and regulated industries. This article does not provide legal advice or create an attorney-client relationship. Perhaps most importantly, please remember that the use, possession, distribution and sale of marijuana remains a crime under federal law and (except as specifically permitted by HB 523) the laws of Ohio. This publication does not, and should not in any way be construed to, assist anyone in violating applicable law.

[1] Jeff McCourt is an associate in the Corporate & Securities group in our Cleveland office, where he focuses on counseling cannabis businesses and other emerging-growth companies, venture capital and private equity funds in a variety of business and finance matters. He can be reached at 216-363-4428 or jmccourt@beneschlaw.com.

[2] Dan O’Brien is an associate in the Health Care & Life Sciences group in our Cleveland office, where he focuses on advising long-term care providers, durable medical equipment companies, hospitals, home health care companies and other ancillary service providers on transactional and regulatory business issues. He can be reached at 216-363-4691 or dobrien@beneschlaw.com.

[5] See Jim Provance, Ohio board deals blow to medical marijuana, ToledoBlade.com, September 23, 2016 (“The Ohio State Medical Association had advised its members to wait for further guidance from their state licensing and disciplinary board. That position has not changed. “We would advise our members not to do anything until the rules and regulations have been drafted and promulgated,” said spokesman Reginald Fields. “We understand that may not be for a year or so.””).

The CREATES Act is designed to facilitate access to samples of branded pharmaceuticals and the related safety protocols. Currently, generic manufactures must prove that their low-cost alternative is as safe and effective as its brand-name competitor. Access to the samples of the brand-name drug are needed in order to make the necessary comparisons. Pharmaceutical companies with branded products are reticent to provide samples of the brand-name drug to generic companies. Without samples, generic manufacturers are limited in their ability to do the comparisons needed to fast track FDA approval to bring their lower-cost alternatives to market as soon as possible.

Pharmaceutical companies, in addition to limiting access to their proprietary samples, also restrict generic manufacturers’ access to shared safety protocols for distribution of drugs. To gain FDA approval for certain types of drugs, generic manufacturers are required to join brand-name competitors in a shared Risk Evaluation Mitigation Strategy with Elements to Assure Safe Use (“REMS”) distribution safety protocol. Pharmaceutical companies often refuse to negotiate a shared safety protocol with generic manufacturers because they would be undermining their market share, which likely would have a negative impact on their business.

As drafted, the CREATES Act allows generic manufacturers to seek injunctive relief from federal courts against both these practices. The CREATES Act allows generic manufacturers to obtain a court order compelling the pharmaceutical company to supply samples of brand-name drugs for comparison testing. The CREATES Act also allows generic manufacturers to seek a court order compelling a brand-name manufacturer to enter into a shared REMS with the generic manufacturer or demonstrate that the FDA has waived the requirement to be a part of a shared REMS. Finally, the CREATES Act allows a generic manufacturer to seek an award for damages from a federal court against a brand-name pharmaceutical that will not provide samples or access to shared REMS.

The CREATES Act is supported by the American Hospital Association, the Generic Pharmaceutical Association, and many other advocacy groups that are trying to lower the costs to obtain prescription drugs. With the heighten scrutiny over drug pricing, it will be interesting to see where the CREATES Act goes from here. The entire text of the introduced bill can be found here.

Please contact a member of the Benesch Health Care & Life Sciences team if you have any questions about how the CREATES Act may impact your business.

Darrel Taylor is a partner in Benesch’s Health Care & Life Sciences group. Kristopher Chandler is a law clerk at Benesch.

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On April 18, 2016, the Department of Health and Human Services Office of the Inspector General (“OIG”) issued revised criteria for implementing permissive exclusion authority. These revisions are a non-binding policy statement amending those criteria issued by the OIG in 1997 in a similar non-binding policy statement.

Both the 1997 and 2016 statements address how the OIG will approach excluding an individual or entity (“person”) from participation in Federal health care programs, such as Medicare and Medicaid, from engaging in conduct prohibited by Sections 1128A and 1128B of the Social Security Act. In the 2016 statement, the OIG describes a continuum of risk and the OIG’s responses to health care fraud based upon where the person falls on the continuum of risk. The OIG also revised and refined the criteria that it uses to evaluate the risk presented by a person.

The OIG has conceptualized health care fraud as a continuum of risk, with some people presenting a low risk of health care fraud and other presenting a high risk of health care fraud.

The severity of the OIG’s response to activities that constitute health care fraud decreases the lower on the continuum of risk the activities fall as follows (from most severe OIG response to least severe OIG response): (1) exclusion; (2) heightened scrutiny; (3) integrity obligations; (4) no further action; and (5) release.

The OIG will generally only release a person from exclusion authority when the person self-discloses the conduct cooperatively and in good faith or when the OIG determines that robust integrity obligations that have been agreed to by the person are sufficient to protect Federal health care programs.

In determining where a person falls on the risk continuum, the OIG considers four (4) general categories: (1) nature and circumstances of the conduct; (2) conduct during investigation; (3) significant ameliorative effects; and (4) history of compliance. Within each category are factors that have been determined to either: (a) indicate a higher risk; (b) indicate a lower risk; or (c) be neutral to the risk assessment. Selected examples of these factors are as follows:

Nature and Circumstances of Conduct

Patient Harm. Conduct that causes or had the potential to cause any adverse physical, mental, or financial harm or other impact to program beneficiaries, recipients, or other patients indicates higher risk. A lack of patient harm is risk neutral.

Loss to Federal Health Care Programs. The greater the amount of actual or intended loss to Federal health care programs, the higher the risk.

Frequency of Conduct. Conduct that is continual or repeated indicates higher risk.

Termination of Fraudulent Activities. The inability of a person to engage in the conduct again because a contract or arrangement was terminated, or due to a change in Federal health care program rules, does not affect the risk assessment.

Failure to Respond to Subpoena. Failure to respond to a subpoena within a reasonable period of time indicates higher risk. However, prompt subpoena response does not affect the risk assessment.

Self-Disclosure. If the person initiated an internal investigation before becoming aware of the government’s investigation to determine who was responsible for the conduct, and shared the results of the internal investigation with the government, this indicates lower risk. If the person self-disclosed the conduct cooperatively and in good faith as a result of the internal investigation, prior to becoming aware of the Government’s investigation, this indicates lower risk. If the person clearly demonstrates acceptance of responsibility for the conduct, this indicates lower risk.

Disciplinary Actions. An entity that has taken appropriate disciplinary action against individuals responsible for the conduct indicates lower risk.

New Owner. If, since the end of the conduct at issue, the entity has been sold in an arm’s-length transaction to a non-affiliated, independent third party with a history of compliant participation in the Federal health care programs, this indicates lower risk.

History of Compliance

Prior Self-Disclosures. If the person has a history, prior to becoming aware of the investigation, of significant self-disclosures made appropriately and in good faith to OIG, CMS (for Stark law disclosures), or CMS contractors (for non-fraud overpayments), this indicates lower risk.

Compliance Program. The absence of a compliance program that incorporates the U.S. Sentencing Commission Guidelines Manual’s seven elements of an effective compliance program indicates higher risk. However, the existence of such a compliance program does not affect the risk assessment.

Integrity Obligations on Successor Entities

In addition to the factors above, the new policy statement addresses factors that the OIG may consider when determining whether to apply integrity obligations to a successor entity following a corporate merger or acquisition.

Protective factors for a successor entity resolving a fraud case for an acquired person include when the successor: (1) purchased the acquired entity after the fraudulent conduct occurred; (2) has an existing compliance program; (3) does not have a prior history of wrongdoing or fraud settlements with the United States; and (4) took appropriate steps to address the predecessor’s misconduct and reduce the risk of future misconduct.

Finally, the new policy statement states that, regardless of risk, the OIG may favor remedies other than exclusion when the offending person is a sole source of essential specialized items or services in a community or provides items or services for which there are no alternative or comparable sources.

The new policy statement can help guide providers to operate so as to minimize the possibility that the OIG will impose exclusion authority upon the provider as well as its employees. Key compliance considerations include organized, coordinated, and timely procedures to address self-reporting and government investigations. The entire text of the April 18, 2016 OIG revised criteria for implementing permissive exclusion authority is available here.

Please contact a member of the Benesch health care team if you have any questions about how to mitigate your exclusion risk in light of this new guidance or how to incorporate it into your existing compliance plan.

Late last week the Ohio ballot board certified a constitutional amendment (the “Amendment”), proposed by Ohioans for Medical Marijuana (“OMM”),[3] to create a comprehensive regulatory program for the provision and sale of medical marijuana in Ohio (the “MMJ Program”).[4] This was the last step that OMM needed to launch its statewide signature gathering campaign, and the group now has until just after the 4th of July holiday to gather 305,591 signatures from voters across Ohio in order to put the Amendment on November’s general election ballot.

This following is a summary from a larger article that focuses on the key structural and economic components of the MMJ Program that, if passed, would be of most interest to prospective patients and market participants. As the campaign progresses, we will provide further detail on other aspects of the Amendment as well as its potential intersection with medical-cannabis legislation currently being considered in the Ohio Statehouse.

Numerous polls over the past year suggest that Ohioans overwhelmingly support some form of patient access to medical cannabis, and that an initiative such as the Amendment would likely pass as long as it is not saddled with controversial provisions. Given the high-profile flameout of last year’s Issue 3 ballot initiative (which failed, largely because it allocated to Issue 3’s funders the only 10 cultivation licenses allowed by the proposal) and the legislative counterpunch of Issue 2 (which passed, largely because of public perception that it would prevent the cultivation oligopoly envisioned by Issue 3 and other similar ballot initiatives in the future), OMM made a curiously bold strategic choice by including in the Amendment a 15 license cap on the number of large cultivation facilities.

This single provision could hand the ballot board exactly the type of ‘hook’ it needs to label the Amendment as violative of Issue 2,[5] which would then require voters to approve not only the Amendment but also a separate ballot question that directly states the Amendment violates the Ohio Constitution because it grants a “monopoly, oligopoly, or cartel” not generally available to others.[6] While we have not seen polling on how this separate ballot question might impact the outcome of prior polls that asked for voters’ opinion on medical cannabis, logic and the result of last year’s vote on Issues 2 and 3 suggest that adding this Issue-2 question to the Amendment could generate a significantly different reaction from voters. Based on the questioning and commentary from ballot board members during the March 31, 2016 meeting at which it certified the Amendment, the fact that the Republican-led Ohio legislature is currently considering its own potentially competing medical cannabis legislation, and the overall political context of the Amendment during the general election, it seems likely that the conservative-controlled ballot board will seek to tack the Issue-2 question on to the Amendment if OMM gathers the signatures to put it on the ballot. While OMM would have solid arguments for challenging a decision by the ballot board to invoke ‘Issue 2 treatment,’ the conservative-leaning Ohio Supreme Court has exclusive jurisdiction over such challenges, and the language of Issue 2 grants the ballot board wide latitude to make this determination. It seems reasonably likely, therefore, that if OMM succeeds in putting the Amendment on the November ballot, that Ohio voters will also be asked to approve an Issue 2 question in addition to the Amendment.

Adding further complexity to the political landscape for the Amendment, members of both parties in the Ohio legislature are actively contemplating their own version of medical-cannabis legislation, and could move legislation quickly through committee to enactment by this summer (see our blog posts here, here and here). If the legislature is able to point to a well thought-out medical-cannabis system (the argument goes), it may be able to dissuade some voters from supporting a potentially broader market envisioned by the Amendment. Conversely, the legislature will also want to be careful in designing a program that won’t be rendered entirely useless if the Amendment passes.[7]

Even after factoring in the likelihood that OMM will have to pass both the Amendment and an ‘Issue 2’ approval and that the legislature will likely adopt a more measured medical-cannabis program in the interim months, the Amendment should still have a decent chance of passage if OMM can gather the signatures to put it on the ballot and support it with an aggressive public education campaign.

Key Takeaways.

For Ohio residents considering operating or investing in a medical cannabis business, the MMJ Program could provide access to a large pool of potential patients and present significant new-market business opportunities. Industry experts outside of Ohio with cannabis-consulting businesses should also find ample opportunities to collaborate with Ohio medical marijuana establishments (“MMEs”) licensed under the MMJ Program. The Amendment contains several provisions that could cause heartburn for some prospective market participants, however, such as entrepreneurs oriented to the ‘connoisseur’ or ‘craft’ end of the market as well as out-of-state businesses and investors looking for equity ownership.

If adopted by voters this November, the following elements of the MMJ Program should be of particular interest to potential market participants:

Speed to Open – The MMJ Program should be open for patients to register and for certain business to open by as early as August 1, 2017, with storefront dispensaries open to patients by late Q1 2018. A year-and-a-half from passage may not sound like warp speed to potential patients, but this would be a very quick startup period based on recent experience in other states. Arizona and Massachusetts, for example, took just over two years from constitutional amendment to licensure of their first dispensaries, while Nevada took over 15 years (though under different procedural circumstances).

Broad Patient Access – Comprehensive qualifying conditions are included, perhaps most notably “severe debilitating pain” and “severe nausea,” which should provide a fairly broad patient pool with access to medicinal cannabis. The Amendment does not go as far as states such as California and Massachusetts, which allow doctors to determine the debilitating conditions for which they deem medical cannabis appropriate. But the Amendment does allow the Medical Marijuana Control Division (the “Division”), created by the Amendment to administer the MMJ Program, to add additional qualifying conditions as it sees fit.

Reciprocity – The Amendment also provides a form of “reciprocity” whereby nonresidents can purchase medical cannabis if they are registered in another state’s medical-cannabis program and their debilitating medical condition (as defined in Ohio) would allow them to qualify in Ohio. This could be an important feature for attracting residents of Ohio’s three most populous neighboring states (Michigan, Illinois and New York), each of which have legalized medical marijuana but have not yet allowed for meaningful patient access and/or functioning commercial-distribution systems.

Homegrow Access – “Homegrow” will be permitted, with up to six plants per patient. Patients who cannot or don’t want to grow their own medical cannabis can specify a “designated caregiver” to grow up to the patient’s limit on their behalf. A designated caregiver can serve up to five specified patients (30 total plants). This type of patient-caregiver has served as the foundation of the medical-cannabis industry since California legalized medicinal use 20 years ago and is thought to be a source of innovation and evolution of ‘connoisseur’ applications within the ‘CannaTech’ space.

Local Controls and Community Benefits – The MMJ Program includes both state and local licensing components that will allow for extensive participation (up to the point of total bans) by local governments and communities. The Amendment requires certain application-evaluation criteria that consider how the benefits of the MMJ Program are being shared among disadvantaged populations and whether dispensaries will provide reduced-cost medicine for low-income patients.

Ohioans Only (for 2 years) – Ohio residents will have at least a two year head start (until January 2020) to build their brands and businesses before nonresidents can start investing in and controlling Ohio medical marijuana establishments (“MMEs”). Out-of-state investors looking to participate in the Ohio market as well as some in-state operators seeking outside investment are likely to have a different perspective on this provision.

Federal Compliance – The Amendment will quickly create a “robust” regulatory regime that, assuming faithful implementation by the parties involved, should easily satisfy the ‘Cole Memo’ criteria for non-enforcement of the federal Controlled Substances Act by the Department of Justice and Drug Enforcement Agency. This is essential for creating an environment where patients and businesses can operate without fear of raids and asset seizures by law enforcement.

Conversely, the following provisions could present significant barriers to entry for would-be market participants, particularly local entrepreneurs looking to enter the ‘connoisseur’ or ‘craft’ end of the cultivation market as well as out-of-state businesses and investors.

Fees and Limits on Large Cultivations – The costs associated with large “Type 1” cultivations (“Type 1 Grows”) – up to $500,000 initial and annual fees – and the limited number of licenses available – up to 15 – could create substantial barriers to entry for smaller cultivators and allow the holders of these licenses to quickly capture most, if not all, of the potential cultivation market. The upfront and annual fees for all other types of MMEs, including the smaller “Type 2” cultivations (“Type 2 Grows”) are up to $5,000 initially and annually, which are relatively affordable compared to other states.

Capital Requirements for All Cultivations – Aside from the upfront and annual licensure fees, perhaps the most restrictive aspect of the Amendment will be the substantial capital requirements that it establishes for cultivation applicants (both Type 1 and the smaller Type 2 Grows). Cultivation applicants will have to show that they have sufficient capital “available” to pay their license fees and to build and operate the grow for one year without revenue. In addition, this capital must have been “seasoned” (a term the Amendment does not define or explain) for 180-days prior to the application. While other states have used financial criteria to assist in determining the bona fides of applicants in a competitive licensure process, these provisions go beyond most other states and could create insurmountable financial hurdles for small businesses and entrepreneurs seeking to enter the market.

Controlling Ownership Restrictions (and Ambiguities) – The Amendment provides ownership restrictions applicable to cultivations (Type 1 and Type 2 Grows) and testing facilities. The cultivation ownership restrictions are intended to limit cultivators to ownership of just one Type 1 or Type 2 Grow license, in an effort to preserve the intent behind the canopy-size limitations (25,000 sq. ft. for Type 1 Grows and 5,000 sq. ft. for Type 2 Grows). Testing facilities are required to not have common ownership with any other type of MME, in an effort to encourage independence from the customers they test. The “controlling person” definition, however, appears to be drafted in a way that could allow applicants to avoid these restrictions altogether through simple legal structuring. We trust the Division will be sufficiently motivated and legally empowered to address these potential ‘loop-holes’ in developing its detailed regulations for cultivation and testing facilities. These ambiguities are discussed in more detail below.

The combined impact of these three provisions could result in the ‘upstream’ cultivation market being dominated by the holders of the 15 Type 1 Grow licenses. This may feel like de-ja-vu for those critical of last year’s failed Issue 3 proposal. Some balancing factors in the Amendment may help to mitigate this impact, however, which we discuss in more detail below.

Disclaimer: As with all of our publications, we remind you that we are providing this analysis for general informational and educational purposes, to help advance a general understanding and discourse around cannabis law and regulated industries. This article does not provide legal advice or create an attorney-client relationship. Perhaps most importantly, please remember that the use, possession, distribution and sale of marijuana remain crimes under both federal law and the laws of Ohio. This publication does not, and should not in any way be construed to, assist anyone in violating applicable law.

[1] Jeff McCourt is an associate in our Corporate & Securities group in our Cleveland office, where he focuses on counseling emerging-growth companies and venture capital and private equity funds in a variety of business and finance matters. He can be reached at 216-363-4428 or jmccourt@beneschlaw.com.

[2] Aaron Mendelsohn is an associate in Benesch’s 3iP group in our Cleveland office, where he focuses on technology transactions, data security and privacy compliance. He can be reached at 216-363-4635 or amendelsohn@beneschlaw.com.

[3] OMM is the state-level political action committee of the national cannabis-prohibition reform organization, Marijuana Policy Project (“MPP”) based out of Washington, DC. MPP has organized several successful campaigns over the past decade, including the 2012 campaign that legalized adult ‘recreational’ cannabis sales in Colorado and the 2008 Michigan ballot initiative, which legalized medicinal cannabis for Ohio’s northerly neighbors. According to OMM’s website, the campaign will need to raise $6 million by October 2016 to pass the Amendment, and that it plans to launch the signature drive on April 9th if it has raised $900,000 by mid-March.

[4] Ohio Attorney General Mike DeWine rejected OMM’s first submission of the Amendment on March 11, 2016, citing several inconsistencies between the summary and the language of the Amendment. OMM submitted its second submission of the Amendment on March 15, 2016 and the Attorney General certified this version of the Amendment on March 25, 2016.

[5] We use “Issue 2” in the colloquial sense to refer to the new provisions added to Article II, Section 1e of the Ohio Constitution, which in pertinent part provides that “the power of the initiative shall not be used to pass an amendment to this constitution that would grant or create a monopoly, oligopoly, or cartel, specify or determine a tax rate, or confer a commercial interest, commercial right, or commercial license to any person, nonpublic entity, or group of persons or nonpublic entities, or any combination thereof, however organized, that is not then available to other similarly situated persons or nonpublic entities” (emphasis added).

[6] Article II, Section 1e(B)(2)(a) of the Ohio Constitution states that, if the ballot board determines the Amendment violates the language cited in footnote 4, then the ballot shall first ask voters the question: “Shall the petitioner, in violation of division (B)(1) of Section 1e of Article II of the Ohio Constitution, be authorized to initiate a constitutional amendment that grants or creates a monopoly, oligopoly, or cartel, specifies or determines a tax rate, or confers a commercial interest, commercial right, or commercial license that is not available to other similarly situated persons?” Then the voters will be asked the second question of whether the Amendment should be passed.

[7] For instance, if the legislature’s program creates a new agency or utilizes an existing agency other than the Department of Health for administering its program, it will likely result in two overlapping administrative bodies responsible for regulating parallel markets. Also, if certain items like possession limits, doctor–patient relationship qualifications, prohibition on homegrow, taxation, etc. are threaded throughout the program, they could expose significant portions of the law to being struck down by courts as violative of broader constitutional rights provided by the Amendment.

Posted onMarch 17, 2016byBenesch|Comments Off on Policy Perspectives Dominate The Discussion As The Medical Marijuana Task Force Looks To The Experts For Answers

By Ted Bibart, Legislative Analyst[1]

Another marathon evening session of the Ohio House of Representatives’ Medical Marijuana Task Force (“Task Force”) was held on Thursday, March 10, 2016, as the Task Force heard testimony past 11 p.m. Chairman Kirk Schuring (R-Canton) was faced with the daunting task of managing a docket of fifteen witnesses and a packed house in the committee room. Members of Benesch’s Regulated Industries Group (the “RIG”) were there to analyze the witness testimony and Task Force inquiries.

The evening’s expert testimony began with “A Perspective From Maryland” as Commissioner Deborah Miran, one of the fifteen members of the Maryland Medical Marijuana Commission, provided an in-depth discussion of the robust regulatory scheme crafted by the Maryland legislature. The Task Force members were clearly intrigued by the pertinent experience of Commissioner Miran. Having sat on the task force that in 2014 helped to overhaul Maryland’s prior (and largely unsuccessful) attempts to legalize medical cannabis, Commissioner Miran empathized with the enormity of the Task Force’s responsibilities in considering the question. Her expertise, based on more than twenty years in the pharmaceutical industry, made for persuasive testimony. Commissioner Miran took part in drafting and promulgating the regulations that govern medicinal cannabis in Maryland, which rely heavily on the regulatory schemes implemented in Arizona, Nevada, and Rhode Island. Although Maryland’s medicinal market is not yet open to patients, industry experts have praised the comprehensiveness of its regulatory scheme, particularly with regard to product safety measures. Commissioner Miran acknowledged that it had not been an easy road to legislation, and more wrinkles would have to be ironed out. But she encouraged the Task Force to follow Maryland’s lead by not “reinventing the wheel” when crafting Ohio’s regulatory scheme. Maryland identified the most effective and robust elements of the various state approaches and innovated where necessary to serve the contours of Maryland’s market. She thought a similar approach might be warranted for Ohio.

Another national expert, Dr. Malik Burnett, MD, MBA, a preventative medicine physician from Johns Hopkins University who trained in medicine and business administration at Duke University, advised the Task Force on the intersection of medicinal cannabis and public health. His experience collaborating with policymakers and public health officials around the world provided a powerful medical perspective on some of the most complex regulatory questions that the Task Force members hope to answer. State Representative Dan Ramos (D-Lorain), Jimmy Gould (Walnut Group/Responsible Ohio), and Dr. Brian Santin (Ohio State Medical Association) asked probing questions regarding physician autonomy, medical management, and patient access to a broad range of medical cannabis therapeutic options. In all respects, Dr. Burnett advocated that any regulatory scheme must protect the sanctity of the doctor-patient relationship, and that patient access to medicinal cannabis should not be overly encumbered by the unnecessary, bureaucratic constraints, such as those that have crippled markets in Illinois and New York. Linda Hondros, representing the Ohio Chamber of Commerce, presented a novel question, not yet posed by the Task Force, regarding information sharing by way of electronic medical records. Dr. Burnett opined as to the possible benefits for patient care, as well as to the challenges such a system would present. Dr. Burnett pointed to Maryland, and Commissioner Miran, as examples for the ability of legislators to come together with outside experts to make state-based decisions that would rightly choose the appropriate approach in response to complicated policy considerations of this type.

Tom Downey, a national expert and prominent regulatory attorney in Denver, Colorado, echoed the sentiments of Commissioner Miran and Dr. Burnett, in highlighting the opportunity Ohio has to create a robust regulatory scheme ahead of industry implementation. Mr. Downey’s extensive experience as a Colorado Regulator, Director, and in drafting the original policies and procedures for Denver’s legalized cannabis licensing structure, were extremely timely as the Task Force considers the best possible approaches to regulate medicinal cannabis. He advocated a system that would not impose overly restrictive barriers to entry, but that would be intensive enough only to support sophisticated operators. Key considerations included a regulatory scheme that was not initially under-funded, and that did not over-tax medicinal cannabis thereby fueling the black market. Mr. Downey addressed the challenges and concerns resulting from the lack of financial institutions willing to serve marijuana related businesses, and encouraged legislators to seek the expertise of outside experts to investigate solutions. Finally, Jimmy Gould asked Mr. Downey to consider the present state of Colorado after full implementation of legalized medicinal cannabis. Mr. Downey assured the Task Force that the fear of the imagined “horror stories” that might result from legalization had proven unfounded in Colorado, instead the economy was booming, tourism was up, and the state budget was being balanced on the strength of $135 million in taxes and fees collected in 2015 alone.

The Task Force also continued to hear touching, anecdotal evidence from patients who had received exemplary benefits of medicinal cannabis therapies. Scarlett Leisure testified with fourteen month-old daughter Savannah in her arms to the incredible impact cannabis oil treatments have had on Savannah’s “catastrophic form of intractable epilepsy” resulting from a deletion mutation of one of her X-chromosomes. Savannah was forced to endure a ketogenic diet and four medications at a time, and was still having at least 5 tonic-clonic seizures a day (all requiring the use of oxygen). With no functioning solution in sight, Scarlett took Savannah to Colorado and started cannabis oil therapy on her own. It was a calculated risk, as there was no medical supervision available in Ohio, but as a result Savannah has only had 8 seizures in the last 5 months (where under the traditional treatments she was receiving, she would have had approximately 750 in that time-span.) In rebuttal to this anecdotal evidence, Dr. Michael Privitera, MD of the University of Cincinnati (also President of the American Epilepsy Society) cautioned that more testing was necessary to assure this type of cannabis therapy was safe and truly effective. In Dr. Privitera’s opinion, legalizing medicinal cannabis therapies without the Food and Drug Administration’s (“FDA”) approval was premature. Dr. Privitera had professed to limit the scope of his testimony to the sphere of epilepsy, but as it veered into other treatment modalities and broader generalizations were made about other fields of medicine, Dr. Santin was there to rein him in, particularly in the area of physician autonomy and patient access. Finally, Jimmy Gould asked Dr. Privitera to reflect on the testimony and experience of Scarlett and Savannah Leisure. The doctor did acknowledge the effectiveness of medicinal cannabis, and clarified that in his opinion more testing should be done.

Lastly, Jöelle Khouzam of Bricker & Eckler testified on behalf of the Ohio Manufacturers’ Association (“OMA”). While Ms. Khouzam presented many open questions her client had regarding employment-related issues, she was unable to address many of the regulatory solutions other states had devised to satisfy the challenges to employers that these questions presented. The Task Force looked to Ms. Khouzam for data substantiating the depth of concern underlying the issues she presented for consideration, and unfortunately none was presented in her testimony. To help clarify her position, Dr. Santin, Chris Stock, State Representative and physician, Dr. Steve Huffman (R-Tipp City), and Rep. Ramos all drew analogies to present employer-related issues with opioid medication in hopes of elucidating the OMA’s stance and the manner in which medicinal cannabis would create different and greater concerns. While the responses failed to demonstrate the uniqueness medicinal cannabis presents employers, it did highlight that there are existing answers in both existing, state regulatory schemes and case law.

[1] Ted Bibart, and the Benesch team, will continue to provide detailed analysis and comprehensive coverage of Task Force meetings and on-going developments surrounding the issue.

Ohio’s Medical Marijuana Task Force (“Task Force”) continued to hear testimony on Thursday, February 25, 2016, as eleven individuals provided their thoughts related to medical cannabis in Ohio. Most of the testimony was from proponents of medical cannabis, while one opponent, Captain Jeffrey Orr of the Trumbull County Sheriff’s Office, and one interested party, Dr. Anup Patel of Nationwide Children’s Hospital and The Ohio State University College of Medicine, offered alternative perspectives.

Dr. Patel’s testimony was of particular interest to the Task Force, as it lasted over forty-five minutes and included an open dialogue between Task Force members and Dr. Patel regarding his clinical studies using purified cannabidiol (CBD) compounds to treat severe epilepsy in children. Dr. Patel stated that the clinical studies he is leading at Nationwide Children’s Hospital are one of only two such studies sanctioned by the U.S. Food and Drug Administration (FDA) for CBD use to combat epilepsy in children. Early indicators from his study suggest that CBD could reduce seizure frequency and has an adequate safety profile. Dr. Patel stressed that his research on the use of purified CBD extracts is different than that of “whole-plant” applications of medical cannabis, which he says have not received the same FDA review as CBD-only studies. Dr. Patel’s research, along with others in the scientific community, seeks to determine the efficacy of purified CBD treatments (which contain none of the psychoactive ingredients in whole-plant medical cannabis), and Dr. Patel urged the Task Force to be cautious in crafting a legislative framework that legalizes anything without adequate scientific research to support its use. Later testimony challenged some of Dr. Patel’s assertions, noting that the dearth of FDA sanctioned studies on whole-plant applications of medical cannabis is a direct result of the plant’s status as a Schedule I controlled substance under the Controlled Substances Act.

Of the evening’s proponent testimony, Dr. Michelle Price, a Dayton pharmacist, and Tamara Dietrich, of Scottsdale, Arizona’s Beacon Information Designs, provided particularly interesting perspectives. Dr. Price spoke at length about the historical use of medical cannabis in the US prior to its prohibition, the US Department of Health’s patent on medical cannabis, and some of the global research done on the endocannabinoid system.

Ms. Dietrich offered expertise regarding the need for a strong regulatory structure supported by information systems to track and maintain the entire medical cannabis system and infrastructure. Beacon Information Designs has done extensive research on this subject for the State of Arizona, and Ms. Dietrich provided the Task Force with much of this information, as well as offered her own opinions on which state regulatory structures have been successful. For example, Ms. Dietrich spoke about her home state of Arizona’s lack of required testing, and the issues it has caused within the medical cannabis supply chain. She also spoke about the perceived unfairness behind provisions of the Nevada medical cannabis law that only permit “homegrown” cannabis for patients who live twenty-five miles from a licensed dispensary. Task Force member Lora Miller (Ohio Council of Retail Merchants) engaged Ms. Dietrich in dialogue regarding whether Ohio should have physician education requirements for recommending medical cannabis to patients, similar to laws in Maryland or New York.

Captain Orr’s opponent testimony began with him holding two bags of police-seized cannabis representing the two maximum weights for the two lowest misdemeanor criminal charges for possession of cannabis in Ohio. The gesture grabbed the Task Force’s attention, and at times Captain Orr’s testimony took the tone of a cross examination as Task Force member Chris Stock (Markovits, Stock & DeMarco) probed Captain Orr regarding his proffered knowledge of an increased black market for cannabis in states that have recreation cannabis use. After a repeated line of questioning by Mr. Stock, Captain Orr admitted to having never visited or raided dispensaries in any of these states but stated that he had worked with law enforcement joint-task forces in those states to bolster his testimony.

Of all the proponent testimonies, the most impactful may have come from the night’s last, as Patrick Rogers of Dayton limped to the podium to offer his heart wrenching story. As a young cancer survivor, Mr. Rogers discussed how he traded being cancer free for a life of bone disease and other various painful afflictions that he said was caused by his cancer radiation treatments. He articulately spoke on how his personal use of medical cannabis has allowed him to walk relatively pain free, maintain a 40 hour a week job, and be a productive, tax paying citizen of Ohio. Without access to medical cannabis, Mr. Rogers said he would be unable to move and provide for his family, and urged the Task Force to permit legal home grown medical cannabis.

The Task Force is off the week of February 29, but will resume with its final three sessions on Thursday, March 10 at 7 p.m., Thursday, March 17 at 3 p.m., and Thursday, March 31 at 3 p.m..

The Benesch team will continue to provide detailed analysis and comprehensive coverage of Task Force meetings and on-going developments surrounding the issue.

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